27 January 1984 Income Tax Severed Letter

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

January 27, 1984

K.B. Harding

XXXX

This is in reply to your letter of January 8, 1984, concerning the Canada-United Kingdom Income Tax Convention (Convention).

XXXX

The question of whether or not anything could be done to grant relief for those individuals who are forced below the poverty line because of falling currency rates in the country from which they receive their pension, is one of tax policy and not tax administration. Since tax policy matters come under the purview of the Minister of Finance, the Honourable Marc Lalonde, any recommendations you might have should be made directly to him.

As you are aware, the general rule is that pensions may be taxed both in the country of source and in the country of residence of the recipient. However, there is a provision in the Convention and in the Income Tax Act for a deduction from Canadian income tax (foreign tax credit) in respect of part or all of the United Kingdom tax paid by Canadian taxpayers on pension income which is sourced in the United Kingdom. You indicate in your letter that such credit cannot be used by you since you are not taxable in Canada.

The Convention also contains a provision which exempts the first $10,000 Canadian or 5,000 pounds sterling of the total pension payments, whichever is the greater, from taxation by the source country government. This exemption, however, does not apply to United Kingdom pensions paid out of United Kingdom local or public funds to an individual in respect of services rendered to that government (public pensions) in the discharge of functions of a governmental nature.

It is our understanding that the basic United Kingdom withholding tax rate for pensions paid to non-residents of the United Kingdom is 30 per cent. Taxation laws in the United Kingdom do provide for reducing this rate of tax in accordance with Section 27 of the Income and Corporation Taxes Act, 1970. However, in order to determine whether you qualify for such relief you would have to provide the United Kingdom with details of your world income. You could contact the Inland Revenue Claims Branch at Magdalen House, Trinity Road, Bootle, Merseyside, L69 9B8, United Kingdom, for information as to whether you may qualify for a reduction of withholding tax.

As a result of many letters received by the Canadian Government concerning the United Kingdom withholding tax on public pensions, Canadian government officials met with their counterparts in the United Kingdom in May 1981 and July 1982 in an attempt to resolve this problem. An attempt was made to exempt from withholding tax the first $10,000 Canadian or 5,000 pounds sterling of the total pension payment, whichever is the greater, from taxation in the source country as is the case with private pensions. The officials in the United Kingdom were not prepared to make such a revision of the Convention at that time.

Since the terms of the present Convention permit the United Kingdom authorities to withhold 30 per cent tax on pension payments, I regret I cannot offer any suggestions to assist you to reduce the amount of United Kingdom withholding other than attempting to determine if a reduction can be accomplished under Section 27 of the Income and Corporation Taxes Act, 1970.

Generally speaking, all amounts received as a pension should be included in the Canadian Income Tax Return. Exceptions to this rule are outlined in paragraphs 12 to 19 of Interpretation Bulletin IT-397 , a copy of which is attached for your convenience. All pensions, except the Canadian Old Age Security Pension and the Canada Pension Plan benefits, will be included on the line titled "other pensions or superannuation".

Yours sincerely,

Director Provincial and International Relations Division

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